The Collapse of Jietue Auto: Failure Despite Backing from Giants, and the Employees' Plight

The Collapse of Jietue Auto: Failure Despite Backing from Giants, and the Employees' PlightIn the early hours of December 13th, around 2 AM, Xia Yiping, CEO of Jietue Auto, remained trapped in a meeting room at the company's Shanghai headquarters. Hundreds of employees gathered outside, agitatedly demanding that Xia, along with major shareholders Baidu and Geely, provide solutions regarding the company's dissolution and employee compensation

The Collapse of Jietue Auto: Failure Despite Backing from Giants, and the Employees' Plight

In the early hours of December 13th, around 2 AM, Xia Yiping, CEO of Jietue Auto, remained trapped in a meeting room at the company's Shanghai headquarters. Hundreds of employees gathered outside, agitatedly demanding that Xia, along with major shareholders Baidu and Geely, provide solutions regarding the company's dissolution and employee compensation. This near-24-hour standoff served as a microcosm of Jietue's rapid collapse, a tragedy highlighting issues of responsibility, trust, and the workings of giant capital.

The catalyst was an internal announcement around 7 PM on December 11th, stating that the company faced severe financial difficulties. Employees were given two choices: voluntarily resign by Friday and receive N+1 compensation (with uncertainties, expected payout in February), or remain unemployed but with no salary. Simultaneously, employees discovered that November's social security payments hadn't been made, despite salaries being paid as usual. This sparked outrage, flooding social media with accusations against the company and Xia, while some suppliers publicly issued payment demands.

On December 12th, reporters visiting Jietue's Beijing office found employees packing up and leaving. Morale was low, with pessimism about the future, many simultaneously pursuing legal recourse and new job opportunities. The situation in Shanghai was even more tense, with employees congregating outside the office, demanding explanations and solutions, some even calling the police fearing Xia might flee.

The crisis extended beyond physical locations. Online videos showed a Jietue livestream salesperson abruptly learning about the company's inability to pay salaries, breaking down and ending the broadcast. This dramatically illustrated the devastating impact on employees.

In communication with employees, Xia admitted to severe financial difficulties, promising to resolve the social security and N+1 compensation issues. He claimed to be actively communicating with Baidu and Geely, but the board had not approved a proposal to address the social security issue. He even stated his willingness to personally pay employees' social security contributions, but was refused by the shareholders. Xia emphasized his minority shareholder status, lacking decision-making power regarding company strategy, with Baidu holding 80% of the voting rights.

However, despite Xia's promises and communication with Baidu and Geely, employees remained unconvinced. They questioned Baidu and Geely's roles, believing the giants should bear social responsibility. Many demanded direct dialogue with Baidu's top management, a request unmet.

According to Caixin, Jietue's financial crisis stemmed primarily from Baidu's withdrawal of investment. In October, Baidu sent a financial team to conduct due diligence for a planned 3 billion yuan investment, but the findings revealed a 7 billion yuan deficit, leading Baidu to halt the investment. This was confirmed by multiple independent sources.

Jietue insiders revealed that 3 billion yuan in funding had been secured in the first half of the year, but depleted by November. The reasons and details behind Baidu's sudden withdrawal remain undisclosed. The allocation of these funds and internal financial management practices require further investigation.

Jietue Auto was initially Jidu Auto, a joint venture between Baidu and Geely founded in January 2021, with Baidu holding 55% and Geely 45%. Licensing issues temporarily sidelined Jidu. In August 2023, Geely and Baidu established Hangzhou Jietue Auto Technology Co., Ltd., rebranding Jidu as Jietue, a Geely sub-brand, with Geely holding 65% and Baidu 35%.

Throughout the crisis, Baidu and Geely remained silent. Sources suggest Geely primarily provided technical support without deep operational involvement. Xia, however, emphasized Baidu's 80% voting power and effective control.

Jietue employees widely believe Baidu and Geely are responsible for the current situation. They argue that employee recruitment and customer purchases were based on trust in these giants, and their subsequent apparent avoidance of responsibility is unacceptable.

Jietue's rapid downfall is regrettable. In September, its second model, the Jietue 07, launched, with Xia expressing confidence in its capabilities, calling it an "all-rounder" with no market competitors. Sales grew from July to October, exceeding 3,000 orders and monthly deliveries. Some suppliers, based on this growth, prepared ample parts inventory.

However, November sales plummeted to 2,485 units, leading to a rapid liquidity crisis and the threat of bankruptcy. This sudden shift caught employees and suppliers off guard, resulting in significant losses.

Zhao Gang, former vice president of Leapmotor, joined Jietue in June as CEO business advisor and product line head, bringing Huawei's management experience and making adjustments to Jietue's product lines and operations. However, these adjustments failed to prevent the collapse.

This crisis highlights the critical role of liquidity for automotive companies and exposes the financial risks and management challenges faced by emerging automakers. Giant backing isn't a guarantee of success; effective risk management, transparent financial operations, and active shareholder involvement are crucial for long-term viability. Jietue's failure warrants reflection for all emerging automakers and investors.

After continued negotiation, Xia Yiping finally agreed to employee representatives' reasonable demands early on December 13th, outlining a plan for implementation. From December 13th to 17th, multiple communications would take place between Baidu, Geely working groups, and employee representatives to resolve social security, salary, and N+1 compensation. However, the actual implementation and whether employees receive their due remain uncertain. Jietue's outcome will serve as a significant case study in China's new energy vehicle industry, revealing risks in business management and the complexities of capital markets and social responsibility. Jietue's future, and how Baidu and Geely respond, remains uncertain, with lasting industry-wide impacts.

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